Consequences of a Cloudy Contract
When drafting a contract, whether it is a lease, purchase and sale, exchange, co-ownership or matrimonial agreement, or otherwise, it is particularly important to be specific and clear as to time-lines and date requirements. Ambiguity can lead to consequences, and those consequences can be costly.
If you are doing business with another party, do you have a contract in place? Is that contract clear and unambiguous? Engaging an experienced attorney can help you to navigate the answers to these questions, and avoid potential consequences, such as a contractual breach, that may arise from an ambiguous contract.
Illustrative is a recent case involving a dispute between a lessor and lessee, regarding the interpretation of a lease contract.
The Plaintiff, Malik & Sons, LLC, (“Malik”), owned a tract of undeveloped land in St. Tammany Parish, Louisiana. Desiring to lease the property, Malik executed a lease with Defendant, Circle K Stores, Inc. (“Circle K”). Under the terms of the contract, Circle K would have the ability to construct and operate a gas station and convenience store on the leased land, and would pay rent to Malik.
The dispute arose over whether or not Circle K gave timely notice to Malik of its desire to rescind the contract. The decision of whether notice was timely hinged on the commencement date of the lease. Interpreting the contract differently, each party argued that the lease began on a different date.
Per the terms of the contract, Circle K was given a “feasibility period,” during which it could review the property and obligations under the contract. The contract stipulated that the feasibility period would be ninety (90) days long, and that during the period, Circle K would have the option to terminate the contract without consequence. Upon passage of the 90 days without proper notice to Malik of its dissatisfaction, Circle K would be bound by the contract.
Both parties signed the contract, with Malik signing first and Circle K signing approximately one month later. Malik argued that upon Circle K’s execution of the lease, the contract was effective and the 90-day feasibility period began. Under the contract terms, upon its execution, Circle K was to open an escrow account in connection with the lease. Several weeks after execution, Circle K engaged an escrow agent, who subsequently dated the first page of the lease. Thereafter, Circle K contended that the 90-day feasibility period was to begin on the escrow agent’s date, rather than on the date Circle K executed the contract.
The Court found the contract terms to be ambiguous, and subject to more than one interpretation. Specifically, the Court found the provision stipulating the effective date of the contract (i.e. whether the lease was fully executed upon the signatures of the parties or upon the subsequent signature of the escrow agent) to be vague. In its analysis, the Court cited Louisiana Civil Code article 2046 and the case of Greenwood 950, LLC v. Chesapeake Louisiana, LP, to explain what leverage courts have in interpreting contract language. “When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent. When the lease is ambiguous, the court must ascertain the intent of the parties through the use of parol evidence.”1 The Court found that because of the contract’s ambiguity, it was possible to interpret the contract’s stipulation about the required start date in more than one way. Accordingly, the Court had the ability to look at other evidence (“parol evidence”) outside of the four corners of the contract to prove the intent of the parties.
1 Malik & Sons, LLC v. Cir. K Stores, Inc., Dist. Court, ED Louisiana 2016.
This determination lead to a trial on the merits of the case, wherein a jury issued a verdict for Malik holding, among other things, that the contract was executed and effective the day it was signed by the parties, not the day the escrow agent signed and dated, and that the 90-day feasibility period thus started weeks before the escrow agent was involved. Accordingly, Circle K’s notice of termination was not timely, and the jury awarded Malik over $130,000 in back-rent and taxes.
Do you need a contract drafted, reviewed or revised? Dutel Law Firm represents individuals and companies with a wide-range of contract drafting needs, providing cost-effective and efficient service. Our attorneys are happy to assist you in drafting lease, purchase and sale, exchange, co-ownership and matrimonial agreements as well as a variety of other contracts. Call us today at (985) 892-6474 to set up a consultation and let our attorneys assist you with your contract needs.
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